Question

The return on the Rush Corporation in the state of recession is estimated to be -22% and the return on Rush in the state of boom is estimated to be 30%. The return on the Oberman Corporation in the state of recession is estimated to be 43% and the return on Oberman in the state of boom is estimated to be -17%. Given this information, what is the covariance between Rush and Oberman if there is a 0.70 probability that the economy will be in the state of boom and a 0.30 probability that the economy will be in the state of recession. Place your answer in decimal with 4 places.

Answer 1

Probability (P)	Return on Rush Corporation (x)	Px	x - mean of x	Return on Oberman Corporation (y)	Py	y - mean of y	(x - mean of x)*(y - mean of y)	P*(x - mean of x)*(y - mean of y)
0.7000	30.0000	21.0000	15.6000	-17.0000	-11.9000	-18.0000	-280.8000	-196.5600
0.3000	-22.0000	-6.6000	-36.4000	43.0000	12.9000	42.0000	-1528.8000	-458.6400
Mean of Returns for Rush Corporation	14.4000	Mean of Returns for Oberman Corporation	1.0000	Covariance of returns between the two	-655.2000

Covariance = Probability * ( Return of asset 1 - mean of return for asset 1 ) * ( return of asset 2 - mean of return for asset 2)

Mean = sum of ( returns * probability of returns)

covariance between Rush and Oberman = -655.2000